FREE ESSAY ON FOOD INDUSTRY

FOOD INDUSTRY

Including the concepts of elasticity, utility, costs, and market structure to explain the
prices charged by fast food retailers. Firms within the fast food industry fall under the
market structure of perfect competition. Market structure is a classification system for
the key traits of a market. The characteristics of perfect competition include: large
number of buyers and sellers, easy entry to and exit from the market, homogeneous
products, and the firm is the price taker. Many fast food franchises fit all or most of
these characteristics. Competition within the industry as well as market supply and
demand conditions set the price of products sold. For example, when Wendy's introduced
its $.99 value menu, several other companies implemented the same type of changes to
their menu. The demand for items on Wendy's value menu was so high because they were
offering the same products as always, but at a discounted price. This change in market
demand basically forced Wendy's competition to lower prices of items on their menu, in
order to maintain their share of the market. The previous example illustrates the
elasticity of the fast food industry. Supply and demand set the equilibrium price for
goods offered by franchises within the industry. Competitors of Wendy's must accept the
prices established by the consumer demand for the value menu. If consumers didn't respond
so positively to Wendy's changes, other firms wouldn't have had to adjust prices. On the
flip side of this concept, there is no need for franchises to further reduce prices below
the current levels. At the current prices, firms may sell as much product as they want,
thereby maximizing profits. This industry has a very high utility value. Utility is a
measure of satisfaction or pleasure that is obtained from consuming a good or service. If
consumers feel as if they get a good meal, at a good price, then they're satisfied. This
customer satisfaction coupled with relatively low prices keeps the industry profitable.
Another quality of perfect competition that may be overlooked, but is vital to this
industry is the ease of entry into the market. Start-up franchises within this market
structure can begin operating with relatively low initial investments (compared to other
industries). This is not the case where monopolies are concerned. There are numerous
barriers to entry into monopolistic market structures, capital being one of the most
prominent barriers. If a new franchise can offer the consumer a quality product at a
reduced price, then the chances of success are greatly increased.